Lawrence Wong: Intervention necessary to achieve a stable market

The interests of property developers and regulators seldom align. The ninth round of property cooling measures introduced in July was proof of that. The measures were considered “tough” by property industry players who lamented that the government had prematurely snuffed out a property market still in the early stages of recovery.

Explaining the government’s thinking and rationale behind the cooling measures was National Development Minister and Second Minister for Finance Lawrence Wong. He was guest of honour at the Real Estate Developers’ Association of Singapore (REDAS) 59th Anniversary Dinner on Nov 15.

“The government cannot and will not take a hands-off attitude to the property cycle,” said Wong. “So there should not be any surprise when we intervene in the market because that’s our approach and attitude. We will not take a hands-off approach to the property cycle. I don’t think any responsible government would do so.”

Minister Wong: It is not our intention to bring property prices down. That’s not our intention. Our aim is to have a steady and sustained property market, moving broadly in line with income growth – meaning, prices moving in line with fundamentals. (Photo Credit: REDAS)

Wong added that the government “would do everything we can” to prevent a property bubble from forming and to minimize exuberance in the market. “It is not our intention to bring property prices down,” he continued. “That’s not our intention. Our aim is to have a steady and sustained property market, moving broadly in line with income growth – meaning, prices moving in line with fundamentals.”

Speculators may like large price swings because they want to “time the market” and “buy low and sell high”, added Wong. “But our own experience has shown that if corrective actions are not taken to prevent a bubble from forming, the cost will eventually be larger and more painful; and ultimately this will harm the vast majority of genuine home buyers and owners.”

Wong reminded the audience – the majority of whom are property developers, property consultants and realtors - that in the last property cycle, the government acted after a very sharp rise in prices. “The government had to intervene eight times before stability was restored,” he said. “Learning from that experience, we decided to move quickly to implement the latest round of cooling measures in July this year. Why did we do so? What was the basis?”

He pointed to data and facts. “Within a period of 12 months from mid-2017 to mid-2018, prices had increased by more than 9%,” said Wong. “To put this in context, in the last round, it took us eight rounds of property cooling measures and four years for property prices to fall 12%. And within one year, prices shot back up by 9%. There was every indication that the price increase would continue.”

Wong added that developers’ bids in government land sales (GLS) had indicated “quite bullish expectations” of a continued rapid increase in property prices. “We were at a very real risk of price increase that would run ahead of economic fundamentals and the pace of price increase from mid-2017 to mid-2018 was already almost double that of income growth in 2017,” he continued.

If price growth had continued to outpace fundamentals, there would eventually have been a “destabilizing correction later on” that would be even more painful for everyone – both sellers and buyers, warned Wong. “That’s why the measures were put in place: they were intended to moderate the cycle.”

Four months on, the results are evident: prices have not come down, but are “flattish” or at least, increasing at a slower rate, said Wong. “Land sales and overall transaction volumes have moderated.”

Augustine Tan, President of REDAS had said in his speech that “the collective sale fervor has cooled considerably” since the July property curbs. Wong added: “Indeed, it has because the measures were intended to achieve that.”

More importantly, the measures have encouraged en bloc sellers and developers to be more realistic in their price expectations, “which is what we had intended”, said Wong.

Redas President Tan: There is no visibility as to how the demand will pan out in the next six-to 12-months (Photo Credit: REDAS)

REDAS’ Tan had said in his speech that since the property cooling measures, “sale transactions have been uncertain and URA’s data for 3Q2018 confirmed the impact.” In the three months of 3Q2018, 932 private residential units were sold in September compared to 617 units in August and 1,724 units in July 2018. URA’s latest figures show just 487 private residential units were sold in October.

“This confirms that the July sales was driven by the front loading of property purchases to beat the new cooling measure deadline, and was not an indication of true market demand,” adds Tan. “There is no visibility as to how the demand will pan out in the next six-to 12-months.”

As the July cooling measures took their toll, private residential property prices grew at a slower rate of 0.5% q-o-q in 3Q2018, compared with 3.4% increase in 2Q2018 and 3.9% in 1Q2018, according to URA data.

Supply remains high, points out Tan. At the end of 3Q2018, there was a total supply of 50,330 uncompleted private residential units, an increase of 11.8% compared with 45,003 units in 2Q2018. In addition, there is a potential supply of 14,200 units from GLS (government land sale) sites and awarded en-bloc sale sites that have not been granted planning approval.

However, Tan had highlighted “significant headwinds” such as trade and global economy slowing, interest rates on an uptrend, and more supply coming on stream in the domestic housing market.

It was precisely because of these reasons that the government decided to make a preemptive move with the cooling measures in July, reasoned Wong.

“If we hadn’t done anything, prices would have gone up by 10%, perhaps 15%; and next year, it will continue to rise,” he continued. “Then in two to three years’ time, you will have another crash and more Singaporeans will be hurt. And that’s the reason we decided we had to move with the cooling measures.”

Wong added: “I’ve spent some time explaining our thinking and the rationale for the measures so you understand the thought processes in government when we make a move like this; and help you understand the framework in which the government thinks about the property cycle; and you can plan ahead in your business planning and decisions.”

Some people may have a different view: that the market should run its own course, and that it should be a laissez-faire situation. It’s fine to have a different view. “But the government’s view is one where we believe that intervention is necessary to achieve a stable market, and one where prices continue to rise steadily in line with fundamentals,” emphasized Wong. “We believe that this approach will yield more benefits for the majority of Singaporeans in the longer-term.”

These will provide new opportunities for growth, and will bring more jobs and amenities closer to our existing residential estates (Photo Credit: Samuel Isaac Chua/EdgeProp Singapore)

Wong recognizes that “developers have short-term commercial imperatives”. However, he appealed to them to “understand the basis of the government’s action and why we think this is the more responsible approach to take in the longer-term.”

Wong said that the government is focused on economic fundamentals and is working hard to transform the economy. “The more our economy grows, the more household income increases,” he says. “Then we are more likely to see sustained and steady increase in housing prices. And we have every reason to be confident about our future.”

The government is focused on developing growth clusters outside the city centre: In the west, there’s the Tuas mega port and Jurong Lake District; in the north there’s Punggol Digital District and Woodlands Regional Centre and the new Rapid Transit System (RTS) Link in Woodlands; and in the east, Changi Airport Terminal 5 at Changi East. “All over the island, we will have new districts outside the CBD – in the north, west and east,” says Wong. “These will provide new opportunities for growth, and will bring more jobs and amenities closer to our existing residential estates.”

Within the city centre, the government plans to inject more mixed-use and residential components. “We want to increase the utilization of those spaces beyond office hours and we want to provide more housing options for people working in the CBD,” continues Wong. “We want to expand our CBD to [the] Greater Southern Waterfront, especially when our port moves to Tuas.”

While the property market is a lot more subdued given the recent cooling measures, Wong emphasized: “We are not putting in measures to bring down prices. Our aim is to steady the cycle, moderate excesses, and ensure that the property market and prices remain stable. That’s our aim.”